Tactical Asset Allocation – April 2021

Tactical Adaptive Strategies Update


All three of our strategies managed to deliver gains for the month.

Adaptive Global finished with a gain of 4.04% for the month and 10.05% Year To Date. The gain was led by positions in commodities and the S&P 500. Asia, which has been dominating returns, took a rest.

Adaptive Income finished with a gain of 1.15% for the month and 5.29% YTD. Adaptive Income was invested entirely in high yield.

Adaptive Innovation finished with a gain of 0.30% for the month and gain of 2.37% YTD. Our ARK fund positions were heavily hedged with Treasuries used to manage volatility.


I have been investing in mutual funds, hedge funds, commodity accounts, newsletter strategies, and managed accounts for well over three decades. In observing these managers, I quickly observed that the vast majority of managers are far more challenged by portfolio losses than gains. From my viewpoint, it was the losses which destroyed both performance and trust.

I ultimately adopted a process in which I screened for above average returns and then filtered out those managers who showed excessive losses regardless of the gains. What guidelines have I used for the past two decades? A Compound Annual Growth of 10% and Maximum Drawdown during bear markets of 12%. While most managers are able to deliver the 8-10% returns in bull markets; it is the bear market drawdowns which eliminates the vast majority of prospective managers.

In doing my research, I quickly eschewed the typical 1-2-3-5-10 year performance figures in favor of historical performance in monthly tables. While infrequently offered, the monthly data was generally available on request. With this information in hand, I could do my own due diligence in calculating Compound Annual Growth, Maximum Drawdown, and the Standard Deviation of returns.

When I started developing Tactical Asset Allocation strategies, I made sure that my reports included very detailed performance statistics so I could see the bad as well as the good. When I began publishing strategies, I made sure that I shared as much of the performance data as practical including detailed monthly data in the Performance Tables.

I have always provided the Maximum Drawdown statistic for the performance history. I recently completed some programming which provides Maximum Drawdown to the right of the Compound Annual Growth Rate for each year. I hope that subscribers and readers find this additional information of use.


From the April 30th Market Monitor

"The major indexes were mixed for a third week in a row with some weakness among mid and small caps and the NASDAQ 100. Several nascent trends may be faltering including the shift from value to growth and breadth improvement.

Although the S&P 500 appears to have started what will likely be a modest correction, the S&P 500 appears to be making a run for the next target at 4595 nearly 10% above this week’s close.

Cumulative Advancing Declining Volume remains slightly negative but is not showing signs of severe deterioration.

The Credit Markets Index declined a bit this week with a rise in emerging markets corporate yield. Generally, the credit markets remain stable and show no signs of investor risk aversion.

The Yield on the 10 year Treasury appears to have finished its correction and is likely to move up into the 2% range.

Gold has broken out of a 7 month declining channel decisively although we are seeing some correction to the recent rally. While we are likely to see another rise in Treasury yields, rising inflation results in falling real yields which is positive for gold.

I am in the camp which believes that the Fed will be forced to take action to cap rates on longer maturities if the 10 year Treasury moves much north of 2%. Actions could include: twisting the yield curve (buy long maturities, sell short maturities), QE (increase purchases of longer maturities), or Yield Curve Control (announcing yield caps and purchasing all of the supply which is not met by demand).

Equity market valuations continue their rise into eye popping levels. Market cap to GDP which touched 150%+- at previous peaks has now risen into the 200% range. The reversion, when it occurs, is likely to exceed all modern historical precedent. Markets run on investor psychology and the reversion will not occur until there is a major shift.

My general sense from all of the data is that the market internals are showing some loss in momentum. This is not the same as turning into a bear market as there are few signs of the material reversal in investor psychology which would presage a major decline."

Thank you for reading.

Earl Adamy